Question: There are many DIY software programs for setting up living trusts. Do you recommend going that route vs. utilizing an estate planning lawyer who’ll charge full-fee? What is a reasonable fee range for a certified estate planning lawyer to set up a living trust? I am married with three kids. We own a single family home and one rental property. We do not own a business. My wife and I have checking, IRA, Roth IRA and 529 accounts. Thanks, Derek, Stockton, CA
Answer: I think trusts are fascinating. They date back to the early 1500s in England. Feudal landowners began shifting legal title of their land to third parties while retaining the benefits of ownership. Trusts have evolved since then, of course. They are a remarkably flexible and complicated estate planning device. For a long time, trusts in the U.S. were synonymous with truly wealthy families. Think of the novels by Edith Wharton and New York’s ruling families in the 1890s. In the 21st century, many well-off middle-class families have found trusts useful. The most popular trust is by far the simplest: a living trust.
Here’s a very quick overview of living trusts. In essence, it involves transferring ownership of property — your home, your stocks, mutual funds and the like — to the trust. You can serve as the trustee, but you don’t have to. You could pick a trusted family member or a financial institution to act as trustee. Living trusts are usually “revocable,” meaning you can change it and even end it at any time.
A big attraction of a living trust is that it allows your estate to avoid probate when you die. The reason is the trust owns the property and not you. When you die, the only property that must go through probate is that which is in your name. The trust property passes to your heirs outside of probate. Trusts are often popular when property is owned in several states. It’s a convenient way to avoid multiple probates.
However, like all financial arrangements, I would make sure you really need one. There’s a lot of paperwork. Depending on how the trust is set up, it can cost you to maintain, since every time you buy or sell something that’s part of the trust, you have to update it. A poorly drawn trust can cost you money and put your estate planning at risk. A trust is typically in the $2,000 to $3,000 range. You need a will even with a trust. In many states, probate has been streamlined. Many middle-class people find that a will, designated beneficaries on retirement savings plans, and the like are enough. The state bar of California offers a basic overview here.
A word of warning: The marketing of living trusts to people who don’t need them is a well-known problem. The Federal Trade Commission has a consumer alert with good advice on its website. This isn’t to say a living trust isn’t a legitimate product; it is definitely legitimate. You have to be wary of with whom you do business to set one up, if it’s the right thing for you to do in the first place.
Now to the specifics of your question. If you want to go the DIY route, I would stick to well-known companies like Nolo.com, the long-time publisher of consumer-oriented self-help legal guides. Even if you don’t go the DIY route that Nolo recommends, you can profit by reading its living trust primer here.
However, when it comes to wills and living trusts, I’m conservative. I think it pays to hire a seasoned estate planning lawyer to do the job for you. You’ll want to work with someone who is an expert in wills and living trusts. Yes, it will cost you a tidy sum. The reason I like working with a professional is to make sure you get it right, that your questions are answered, the various contingencies are addressed, and your will and living trust complement one another.